It’s been impossible to distance yourself from anti-Russian sanctions, trade or currency wars; every side has been affected. Belarus is now experiencing the largest (in several decades) devaluation of its currency and, consequently, reduced salary value. Companies are more often addressing state support, while warehouses are overfilled with goods, lacking markets.
Under these conditions, the country is making efforts to diversify its exports but the situation in other states — including Europe and China — is no better. Belarus is failing, so far, to bridge the gap which has emerged as a result of losses on the Russian market.
Similar problems in Kazakhstan are supplemented by the fact that the country is a hydrocarbon supplier; as in Russia, its budget depends on oil prices. Astana has not dared devalue its Tenge for a long time; as a result, the country’s reserves fell by 10 percent in 2015. Because of the expensive Tenge, Kazakh products began losing out on the EAEU market and, last August, the authorities launched ‘free sailing’ on its currency. As a result, it devalued by 26 percent within a few hours.
As regards Kyrgyzstan, it depends greatly not only upon Russia but upon neighbouring Kazakhstan. The country has received a double blow but — even under present conditions — its economy is demonstrating slow growth. Experts lack optimism though, warning that Kyrgyzstan’s state debt may exceed 60 percent of GDP in 2016.
Another EAEU member — Armenia — could face a similar problem, with its state debt reaching perhaps 50 percent of GDP this year. In 2015, the country’s exports failed to grow, due to the economic crisis observed in the CIS and globally. The flow of money being transferred from people employed in Russia also fell.
The Eurasian ‘five’ are now voicing qualms as to whether the EAEU should have been established, as it is experiencing problems. Some assert that the Union’s results are sad, despite it only operating for a year: trade is falling, there is no single currency and the service sphere lacks cohesion. The CIS unites 11 members, rather than five. Commonwealth countries which are not the EAEU members have faced similar problems while those ignoring the EAEU have failed to become richer. The EAEU is not a panacea for the crisis, which has affected every nation, but is an instrument of regulation. It’s easier to agree within the Eurasian Economic Commission and, accordingly, to find solutions.
Objectives to be achieved
Tatiana Valovaya, a member of the Collegium on Eurasian Economic Commission’s Major Avenues of Integration and Macroeconomics:
We need to continue strengthening our integration. Mutual trade within the EAEU has fallen but the fall is, at least, smaller than that with third countries. The structure of trade is improving and turnover in industrial, agricultural and consumer products is growing. We’re now more fully satisfying our production needs, and our main goal for 2016 is to form a single pharmaceutical market.
Another task is to establish a single system of information exchange on products supplied to the EAEU. We also need to strengthen co-operation in the field of macroeconomic policy. At present, not only our traditional partners but business communities in South and North America, Asia and Africa are demonstrating great interest in our Union. Businesses can see the value of joining a single economic space, without barriers.
Need to shift to domestic currencies
Vasily Tarasyuk, a member of the Parliamentary Assembly’s Commission for Legislation and Regulations, speaks of the EAEU priorities in 2016:
For what are Eurasian Economic Union member states preparing?
We must keep the balance between the Union’s interests and those of its member states. Key tasks include co-ordinating monetary and foreign currency policies and increasing domestic trade volumes. To achieve this, supranational bodies need to be established: of the Eurasian Economic Commission in Moscow; of the Centre of Financial Regulation in Almaty; and of the Eurasian Court in Minsk. It’s also necessary to take into consideration the mistakes and failures which such associations have experienced in the past.
To cut economic risk, the EAEU experts recommend shifting to domestic currencies for mutual payments. Moreover, this is envisaged by article 64 of the Eurasian Economic Union agreement. This move should strengthen the national currencies of member states, while enhancing trust in them on the domestic market of each state and the international market.
It’s important to create a common energy market, to reduce electricity expenditure and the GDP energy intensity of EAEU members.
What role does the opening of the Asian Development Bank in China play?
Chinese investors lead in terms of direct investments into EAEU states. The opening of the Asian Development Bank will strengthen this co-operation further, especially in the sphere of energy resources and electricity.
Meanwhile, the role of other states should not be underestimated. Japanese and South Korean corporations are demonstrating great interest in the EAEU’s machine building complex — which boasts $2bn of accumulated direct investments. Co-operation with Iran is also progressing, with investments registered in the spheres of construction, infrastructure and transport. Not long ago, the first agreement on a free trade zone with Vietnam was signed, and talks with Israel are underway.
No need to repeat Eurozone mistakes
Alexander Gusev, the Head of the CIS Strategic Development Centre of the Russian Academy of Sciences’ Institute of Europe:
In 2016, Nursultan Nazarbayev will head the EAEU. Despite sanctions against Russia, Kazakhstan appreciates the prospects of Union development. Mr. Nazarbayev does not view the EAEU as a closed structure and believes prospects exist for Union co-operation with SCO states.
The Western direction is of no less importance for Belarus and the EAEU members should make better use of Belarus’ position as a gateway to Europe. We’re now studying how best to establish supranational management bodies. The Eurasian Economic Commission will continue its operation in Moscow, while the Centre of Financial Regulation will be situated in Astana and Minsk will have the Eurasian Court.
As regards the single currency, it’s too early to speak of. We see how the Eurozone is suffering and we need not repeat its mistakes. Meanwhile, we should more actively use national currencies in mutual payments.
Vladimir Telnov, the Deputy Director of the Institute of Public Policy under the Nur Otan Party (Kazakhstan):
Kazakhstan believes that conditions are now being created for economic strengthening of Eurasia’s economic centre. However, this will not happen from scratch: major projects are needed.
The EAEU and Silk Road Economic Belt integration is being discussed, and Kazakhstan already boasts major experience of co-operation with China. An agreement has been made to shift several dozen companies to our country from China. Clearly, the Chinese wish not only to lay a road to the West but to build an economic belt.
Services accounts for over a half of the EU’s GDP. Meanwhile, this direction is underdeveloped in the EAEU. It requires fewer expenses than development of major productions. The sphere of services is one of the hidden reserves of our development.
Ashot Tavadyan, the Head of Mathematic Modelling in Economy Department at Armenia’s State Economic University:
The EAEU agreement reads that we must co-ordinate our monetary-credit and currency policy. If we fail to fulfil this provision, the situation will worsen. Think of how the Rouble exchange rate has halved against the Dollar. Meanwhile, Kazakhstan delayed its devaluation. A single currency strategy is much needed.
Many complain of falling trade within the EAEU but losses would be even greater if no Union existed. Under crisis conditions, Russia would have closed its borders to support its producers.
China and India eager to trade with us
Yelena Kuzmina, the Head of the Post-Soviet States’ Economic Development Department at the Russian Academy of Sciences’ Institute of Economics:
For the Union to be more sustainable, it must at least double domestic trade, by focusing on domestic production. Pleasingly, in 2015, we signed documents to create a technological platform for the EAEU, supporting innovative manufacturing.
Happily, Kazakhstan has joined the WTO (having previously been a suspended state). In 2015, the country worked hard to meet the norms and regulations of the WTO and the EAEU. There were plenty of contradictions but most were lifted.
Turnover has retained its volume, although has fallen significantly in Dollar value. It’s great that the EAEU states focus not only on Russia but on making the most of each member’s potential. For example, Belarus has set up assembly facilities for its agricultural machinery in Kazakhstan, while the latter uses Belarus’ transport infrastructure to gain access to Europe. We need to create a common market for electricity as soon as possible. However, the interests of various corporations need to be taken into account. Some journalists say that the EAEU is an invented union but the eagerness of China, India, Iran and Israel to build a free trade zone within the EAEU speaks for itself. They see its potential.
By Nina Vasilieva